Announcer:
It’s time now on KROS for Financial Focus. Brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning. And welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate it’s the third Wednesday of every month. So I got Andy Ferguson with NelsonCorp Tax Solutions joining us. Now we were joking on the way up here, wind was kind of blowing us up, but it definitely was not a December 15th type of wind out there this morning.
Andy Fergurson:
No, it’s swimsuit weather out there.
Nate Kreinbrink:
Oh my goodness gracious! Is this kind of strange? I guess you would say as far as temperatures now, but we were obviously also joking around that by Saturday highs in the 20s or something. So,
Andy Fergurson:
Yeah.
Nate Kreinbrink:
Back to reality.
Andy Fergurson:
Yeah. We’ll snap right back into it I’m sure.
Nate Kreinbrink:
It’s that time of the year and as they always say, weather in the Midwest, just wait a day or blink your eye or whatever, and it’s going to change anyways. And we’re definitely into that time period. But again, calling for some higher winds out there this afternoon, into this evening, so be safe, make sure you bring everything that could blow away, I guess, inside. So.
Andy Fergurson:
Yeah, tie it down or bring it in. Yeah.
Nate Kreinbrink:
So.
Andy Fergurson:
Don’t let Christmas sneak up on you either, with the weather being so warm. Christmas will get here before we know it.
Nate Kreinbrink:
It is hard to believe kids will be on Christmas break next week already and run into that end of the year, just crazy times. So enjoy it. At the very end of it, enjoy it. Getting into today’s program. I know Andy and I always kind of meet up on Tuesday, afternoon and just kind of come up with a bullet point list as far as what we wanted to kind of cover in the morning show. Obviously, as every other month comes along, we have plenty to go over, try to cram into this short little segment.
Nate Kreinbrink:
But one of the things that you wanted to kind of start off with and mentioned is, obviously the beginning of 2021 we saw a continuation of some additional stimulus payments that came out, obviously starting in July and we covered on many shows throughout the course of the year, is the child tax credit. And you brought up a pretty good point as far as, late January-ish, I think is when you had said us people should be expecting to get a letter, from the IRS as far as noting all of those payments. And obviously, they for sure want to make sure they hang onto that and put that in their tax file.
Andy Fergurson:
Absolutely. So last year everybody got a letter also, just we all threw it away, because it didn’t seem like it was important.
Nate Kreinbrink:
Right.
Andy Fergurson:
And so, one of the things to remember there was a huge backlog at the IRS this year for people who were filing and it took a long time to get refunds. It took a long time to get returns processed. And 90, 95% of those problems were related to the stimulus money that we got. People misreporting or under-reporting, or over-reporting the amount of stimulus money that they received. So the IRS held all those ones that they couldn’t confirm and had to correct them as they were going through it, which created this huge backlog. And we reported two of our stimulus payments last year on our 2020 return. But we got another one about March or April this year. And that was a big one.
Andy Fergurson:
I know that seems a long time ago, but we did get that payment. And so that one will have to be reconciled this year on our tax return. And anybody who’s got kids has been getting this advanced child tax credit unless they opted out of it. And so it’s possible that you got the full amount of the tax credits. It’s possible you got a partial amount because you opted out, but your wife didn’t, or your wife did and you didn’t. And so that is going to create a very complicated number. It’s not going to be something that your tax accountant’s going to be able to just pull out of the air. And so the IRS has said that they’re going to send out a 6419 letter that’s going to reconcile that for everybody.
Andy Fergurson:
The trick will be if we keep it and put it in with our other tax stuff. When you get that letter, hang onto it, make sure it gets in with the rest of your tax stuff. Along those lines, you’re going to start to see W-2s, 1099s, 1098s showing up in the mail. We want to make sure that all those things are getting collected. Look at your tax return from last year, see the things that you got and make sure you’re getting those same documents again this year. Inevitably, we have people that’ll come in and get their taxes prepared. We’ll prepare their taxes. We’ll say that, hey, did you get this form? Or did you get that form? And they’ll say, no, I’m not going to get that one this year. We’ll prepare and file their taxes in the next week they come in with that form and you got do it over. So just be aware of what you should be getting and make sure you’re getting all those pieces that you need to complete the puzzle.
Nate Kreinbrink:
Right. And I think as you mentioned that new form 6419, obviously make sure you keep that. And I think it’s important too, just for people to when in doubt, keep it, bring it in and you’ll go through it. You’d rather have a few extra items that you don’t necessarily need than obviously to be shorthanded.
Andy Fergurson:
I know I don’t have any problem throwing away something I don’t need when it comes in extra. I’d much rather do that than have to put that return on hold and wait to get another document that’s sitting at home on the counter.
Nate Kreinbrink:
Right. I like another item that you had brought up as far as the above-the-line deduction, and I think last year it was 300. It obviously got raised this year. Maybe talk a little bit about that, and then what people may need to have to verify that. And then also what that is.
Andy Fergurson:
Yeah. And so a lot of people didn’t even know about it last year, but the IRS brought out this limited-time opportunity for a $300 above-the-line charitable contribution deduction. So when 2017 tax cuts and jobs act hit, the charitable deductions were part of your itemized deductions. And many people could no longer take advantage of itemizing because the standard deduction went up so high. And so for two or three years, they stopped or they got out of the habit of bringing in those charitable contributions because they knew they couldn’t do anything with them.
Andy Fergurson:
Well, in 2020, the IRS allowed a $300 above-the-line deduction, which means that whether or not you itemize you could take up to $300 in charitable deductions. So that is cash or cheque donations to charitable organizations. And you could take that off your taxable income. Well, they increased that amount this year to $600. And so now’s the time to start to gather that information. If you gave money to the 5A, or to the Boy Scouts, or to Salvation Army, again, it has to be cash or cheque donations and it has to be for no exchange of services. So if you bought popcorn from the Boy Scouts, that’s not the same as giving them a cheque for no reason. So if you made those charitable deductions, you can take advantage of that on your tax return up to $600 this year.
Nate Kreinbrink:
And I know another item you had brought up yesterday when we were talking is, again, whenever possible, make sure to make that donation with a cheque.
Andy Fergurson:
Yeah.
Nate Kreinbrink:
And obviously because then you can track it and being able to keep track of that. And again, making sure that when you make that donation who you’re actually donating it to, and if it actually applies to this deduction.
Andy Fergurson:
Yeah. Make it with the cheque or try and do it directly from your bank account or some other way. Giving cash is really hard to track and really hard to prove. And so, cheques and bank transfers are the best way to do it because you can get a statement and you can see those things happening.
Nate Kreinbrink:
So again, all good stuff. If you got questions by all means, give you a call and you’d be happy to kind of direct you in the right way. Another item is last year, we saw kind of a break, I guess you would say, in required minimum distributions, the amount that those individuals that were over again at 70 and a half, or just turning 72, that they had a take out of their tax-deferred accounts, their IRA accounts, their traditional 401ks. Obviously, that was initiated back into effect for 2021. So again, people need to get in the habit again that they have to start taking money out of those accounts by the end of the year. They don’t get that break this year like they did last year.
Andy Fergurson:
Yeah. The IRS was really cognizant of the financial concerns that our society was in. And so there were a lot of breaks. There were, the RMDs were suspended, unemployment compensation was not taxed on the first $10,000, the premium tax credit, which is related to Obamacare or the health insurance premiums that you get. The advanced credits that you get there. All of those things were softened. So that the consequences from the actions related to those payments were not nearly as significant on your tax return. And so that’s good because it helped everybody. The bad thing is it may have rolled us into a bad place where we may miss something and head into our tax return this year.
Andy Fergurson:
I think about unemployment compensation. Somebody who’s on unemployment, sometimes they don’t have withholding command of that unemployment, because they’re on unemployment. They need the money. Last year that didn’t hurt them. This year. If you did the same thing, you may be staring at a tax bill because that unemployment’s going to be taxable this year, or maybe you received the premium tax credit. You received some breaks on your insurance premiums. Well last year, if you had an increased income and you would’ve had to normally pay that back, nobody had to pay the premium tax credit last year. It was all washed away due to the pandemic. Well, if you did the same thing this year, you may be in trouble and that premium tax credit can make a big swing. If you’ve got a big premium tax credit, I’ve seen people’s tax returns go from getting a two or $3,000 refund to owing 14, $15,000. And that’s not a fun experience.
Nate Kreinbrink:
That’s not a good Surprise.
Andy Fergurson:
That’s not the kind of thing you want to do when you’re sitting in your accountant’s office. So you need to be aware of those changes. The penalties for not taking an RMD are huge. I mean, I think it’s like 50% of the-
Nate Kreinbrink:
Amount that you were supposed to take.
Andy Fergurson:
Amount that you were supposed to take. And you pay tax on it. Right? So you just got to know that those things are coming back into play. If you haven’t already, you better call somebody, make sure you’re looking at it with your advisors, make sure your RMDs are coming out. Make sure that you’re planning for where your taxes are going to land.
Andy Fergurson:
And for that matter, the child tax credit does the same thing. We’ve said it a hundred times, but the child tax credit, if you took the full advanced child tax credit, it’s going to equate to about $500 less per child on your tax return. So if you’re used to getting a $2,000 tax return and you have four kids, you may be getting zero or even owing money in. And that’s something that I don’t know that everybody’s going to be ready for. We just got to make sure that we’re looking at those things and try to be as ready as possible.
Nate Kreinbrink:
All good stuff. Again, we are approaching the end of the year. So we need… Some of these things have some time-sensitive material to it. So if you got questions, let’s get it taken care of and hopefully avoid any of those penalties and delays as Andy went over. Did want to mention real quick here, before we run out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of December will be donated to the Clinton and Command Knights of Columbus Ladies Auxiliary. Andy, as always I appreciate you joining me. Andy Ferguson, NelsonCorp Tax Solutions. Nate Kreinbrink, NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA/SIPC, investment advisor representative Cambridge Investment Research Advisors Incorporated a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information visit our website at www.nelsoncorp.com.